Qualified Personal Residence Trusts (QPRT, pronounced “Q – pert”), can be used to substantially reduce estate taxes, leverage the applicable estate and gift tax exclusion amounts, and preserve control for the trust maker for a specified term of years. In Florida, it even gets better. The trust maker keeps the unlimited constitutional homestead exemption from creditor claims, and the maximum homestead tax exemption for the trust maker’s primary residence.
A QPRT is an irrevocable trust funded by the transfer to the trust of a personal residence, (primary residence or vacation home), to the trustee, (who can possibly be the trust maker), while retaining in the trust maker a right to reside on the property for a term of years. Many wealthy individuals put both a vacation home and their primary residence in separate QPRT’s.
The QPRT allows the trust maker to remain in possession of the residence, but effectively freezes the then current value of the residence for purposes of estate and gift taxes.
Assuming the trust maker lives past the term of years specified in the trust, the ownership of the residence passes to the residuary beneficiaries of the trust, estate tax and gift tax free. At the end of the term, the trust maker must either leave the property or rent the property from his/her heirs.
Actually the QPRT is not for everyone and there are some definite disadvantages to its use, including no stepped up basis, and possible problems with residuary beneficiaries. Combined strategies with an installment sale or an irrevocable life insurance trust (ILIT) can alleviate some of those disadvantages.
The use of the trust and the various options involved with the trust are extremely complex, and they should be fully understood before deciding to form a QPRT.
If you think that you might wish to talk with us about the formation of a QPRT, please call us at 407-645-3735 or 1-866-789-VOSE.
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